Blockbuster Closes Stores, But It's Not Quite Dead Yet

"As soon as you're born you start dyin." -- Rock band Cake, from the song, Sheep Go To Heaven

After 28 years in business, Blockbuster Video's parent company Dish Network (NASDAQ: DISH) announced plans this week to close the remaining 300 stores, and discontinue the company's dwindling DVD-by-mail business. The former titan in the home video rental business hasn't quite gone the way of buggy whip makers just yet, as there will remain a small network of domestic and international franchisees remaining in business, not to mention the online streaming part of the business.

While this is the end of an era of sorts, Blockbuster will live on.

Source: Wikipedia user Stu pendousmat

Not dead yetWhile the once-commonplace yellow and blue storefronts are officially a thing of the past, Dish will continue to operate both the Blockbuster On Demand pay-per-stream service that is available to the general public, and its Blockbuster @Home service available to Dish Network customers. From the company press release:

This is not an easy decision, yet consumer demand is clearly moving to digital distribution of video entertainment," said Joseph P. Clayton, Dish president and chief executive officer. "Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.

Not buying it; but apparently fewer people are buying DishChances are it was not only an easy decision, but part of Dish Network's long-term plan for Blockbuster from the very beginning. At its peak in 2004, Blockbuster had more than 9,000 locations worldwide, but that number that was already down to fewer than 1,800 at the time of the Dish acquisition in April of 2011. Then-CEO (now chairman) and founder Charlie Ergen had this to say on a company earnings call, just months prior to the Blockbuster acquisition:

My kids think I'm crazy for being in the pay-TV business because they don't pay for TV. They don't pay for movies. But they watch an awful lot of TV and movies. So that's going to be an interesting dynamic.... If you started today and the choice was to launch 10 satellites like us and DirecTV have done, which are going to cost you $3 billion to launch a satellite, you're better off starting Netflix. I mean, the answer might be given where the marketplace is, that you're better off starting Netflix and saving your $3 billion for servers and programming contracts. So I think the world is changing. And my focus and, well, our challenge to our management team is we have to adapt to that.

The most interesting thing about this statement isn't how it applies to Blockbuster's retail operations; it's a reminder that several years ago, pay-TV executives were first viewing Netflix and its streaming peers as real competitors. Ergen was seeing it in his own home.

Dish would soon see it in its business results as well, as the company experienced consecutive quarterly revenue declines for the first time ever in 2012, actually four consecutive quarters of declines over two fiscal years, before the company eked out a minuscule 1.1% growth in the quarter announced in August this year. More concerning are the losses the company has reported in two of the past four quarters.

If the mountain won't come to MuhammadIt's more likely that Dish just whittled Blockbuster down to what it wanted from the beginning: Access to content licensing, and some level of brand recognition to build its streaming and on-demand platform on as a means to add value for the 14 million customers it's fighting to to retain. But the greater risk seems to be less about customers leaving and more about "cord-nevers" -- consumers who never subscribe to pay-TV at all, going straight from their parents' home to streaming Neflix and Amazon. Dish sees this threat.

Charlie Ergen had this to say (slightly paraphrased for clarity) in an interview at All Things D earlier this year,when asked about cord-cutters and the potential impact of cord-nevers:

I'll give you a simple example. If anyone has college kids, when I went to college you had a cable thing in the wall or whatever it is ... there's a cable in the wall but there's not one kid in a university in the world today, in the U.S. that's plugged into that. So they're already doing it ... Most companies, when they become successful, resist change no matter what. Which is I think is the broadcasters. Broadcasters, it's amazing. When I grew up, 100% of the broadcast was three networks, then four. Now it's less than 50%. Why did they let that happen? ... I think we have to embrace ... You have two choices: You can fight change -- anybody who runs a business -- or you can embrace change. And I believe it's less risky, long term, to embrace change.

Will Dish find the change that Ergen speaks of and start attracting cord-nevers? Time will tell; but what's left of Blockbuster is probably an important part of it.

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